How Pat McGrath Labs fell from a $1 billion valuation – and what’s next

How did the award-winning beauty brand Pat McGrath Labs go from a $1 billion valuation in 2018 to a measly fraction of that figure just seven years later?Let’s rewind.After several decades of creating iconic looks on high-end runways and in editorial shoots for magazines, including Allure and Vogue, makeup artist Pat McGrath decided to launch her eponymous beauty brand in 2015. The brand debuted with its first stock-keeping unit (SKU) Gold 001, a gold pigment that, when mixed with an included solution, produced a high-shine, foil effect on the skin. The initial run of 1000 units sold out in just six minutes on Pat McGrath Lab’s website, which helped the brand garner attention from major investment firms and beauty retailers alike.Just three years after launching, the brand secured a wall at Sephora, an incredibly rare feat for any new-to-the-scene beauty business, and a $1 billion valuation with an investment from French firm Eurazeo.However, a combination of factors, including imprudent financial decisions and an overall lack of innovation in recent years, has led to investors growing weary of the brand.In 2021, Eurazeo quietly exited Pat McGrath Labs. In the same year, Sienna Investment Managers purchased a 14.4 per cent stake for €168 million (approximately $183 million), valuing the company at €1.2 billion (about $1.3 billion). One year later, Sienna Investment Managers wrote down that investment by 88 per cent, and in 2024, the firm estimated its stake in the company was worth €21.5 million (approximately $23.5 million), implying a total company valuation of €149 million (approximately $162 million), according to Belgian investment holding company Groupe Bruxelles Lambert’s reports.Today, the company’s future remains even more uncertain as it was recently announced that McGrath will be leading Louis Vuitton’s soon-to-be-launched beauty brand as its creative director. What happened to Pat McGrath Labs?Marie Driscoll, a chartered financial analyst and a professor at Parsons, The New School and the Fashion Institute of Technology, observed a confluence of factors that led to the company’s deteriorating performance and valuation, including “new private equity owners, revolutionary products without the corporate controls to execute to demand and unwillingness to bend to market/consumer demands of access to beauty founders”.Driscoll noted that Pat McGrath Labs was noticeably slow to capitalize on a viral moment last year, after videos of Maison Margiela’s January 2024 couture show were released, showing models with pearlescent, doll-like skin. Fans demanded the brand release the “secret” product behind the models’ appearance, which the team wasn’t able to develop and release until a year later with the Skin Fetish: Glass 001 Artistry Mask. Unlike other brands founded by a heavily public persona, such as Shay Mitchell with her luggage company Béis, McGrath, as Driscoll pointed out, is a noticeably private person. One who is rarely seen promoting her own products in media content or at events, which is a hindrance in today’s consumer landscape.  Pepperdine Graziadio Business School adjunct professor and seasoned beauty executive Kimber Maderazzo concurred with Driscoll’s point. Maderazzo explained that Pat McGrath Labs’ “limited engagement on social media contrasts with competitors who have mastered direct-to-consumer relationships, affected both brand visibility and customer loyalty”.“Beyond marketing challenges, the brand is grappling with operational inefficiencies, high production costs, low margins and supply chain disruptions, all of which hinder its ability to scale sustainably and remain competitive,” Maderazzo explained.Where brands like Fenty Beauty and Charlotte Tilbury have optimized seamless retail distribution, ensuring consistent product availability, Maderazzo pointed out that Pat McGrath Labs has faced stock shortages and fulfillment challenges, potentially impacting sales and retailer confidence.Can Pat McGrath Labs make a comeback?Retail and marketing experts like Melissa Minkow, CI&T’s global director of retail strategy, and Laurence Lim, the founder and managing director of boutique marketing agency Cherry Blossoms Intercultural Branding, are less than optimistic about the brand restoring itself to its former glory.“This is a prime example of a brand and founder being extremely well respected, but not being able to cause the amount of conversion necessary,” Minkow stated. “In my opinion, the brand hasn’t done enough to remain relevant from a marketing and hero product perspective. Other brands have been much noisier, and it’s paid off.”Lim cautioned that Pat McGrath’s challenge lies in democratizing artistic, transformative makeup for a broader audience.“But in the crowded US beauty market, the brand has struggled to maintain its uniqueness, especially with Fenty Beauty setting the standard for inclusivity,” Lim added.Minkow and Lim both emphasized how competition within the beauty industry has become noticeably harder as dupe culture has made it extremely easy for consumers to find more cost-effective alternatives to luxury products. “The beauty category is very, very crowded, and lower-priced dupes are doing well across the board. Pat McGrath products come with a heftier price tag, understandably so, but it’s a tough sell in this economy,” Minkow mused. However, Maderazzo, Lim and Driscoll all seem to believe that McGrath’s appointment as creative director of Louis Vuitton’s new beauty venture, La Beauté, will help give the makeup artist and her eponymous brand a stronger shot at a comeback.  “The experience at Louis Vuitton will be enlightening for Pat McGrath as it will allow her to focus on what she does best and leave the business considerations to others. If she can adapt a similar hands off at Pat McGrath Labs and trust her team, the business has a chance to rebound and will benefit from the awareness of the La Beauté Louis Vuitton launch,” Driscoll said.Maderazzo added that “this collaboration is a win for both companies. LVMH gains access to McGrath’s unrivaled makeup mastery, while Pat McGrath Labs aligns itself with a global luxury giant, potentially revitalizing its influence in the beauty industry.”Lim believes McGrath’s innovative and subversive creativity, mixed with an art of entertainment, creating a show around makeup, are key to cracking the US luxury beauty market.At the end of the day, Bethany Paris Ramsay, the founder of beauty marketing and communications firm Honey B, believes that the legacy McGrath has built for her company is still worth fighting for.“Brands like Pat McGrath Labs deserve their flowers. The founder is deeply respected by all and her creativity and longevity speaks for itself,” Ramsay said. However, she added, if a brand’s strategy isn’t working, it’s essential to pivot. “I genuinely hope the pivot we see for Pat McGrath Labs moving forward doesn’t require the kind of compromises that destroy a brand’s soul,” Ramsay concluded.